Global Economics

To Help the World's Poor, Give Them Real Jobs

Harvesting sugarcane in a field in the outskirts of Modinagar, Uttar Pradesh, India, on February 19

The latest U.S. jobs numbers showed a U.S. unemployment rate still at 7.6 percent. The official global unemployment rate, compiled by the International Labor Organization (ILO), is around 6 percent—which suggests American workers are worse off than their counterparts worldwide. But that statistic is deeply misleading. Unemployment is, by and large, a luxury of rich countries. Billions of people across the world are stuck working long hours in subsistence farming, hawking, or other informal occupations, desperate for a job that provides a weekly wage packet. Solving this underemployment problem is the biggest key to the challenge of economic development worldwide.

In surveys about people’s biggest concerns worldwide, income and employment pretty much always come out on top (PDF). Polls across countries also suggest that losing a job is one of the biggest possible hits to self-reported happiness. At a first glance at the data, you might think the misery of joblessness was a rich-world problem. According to the ILO, Pakistan has an unemployment rate of just 5.2 percent, for example, and India’s is at 4.2 percent.

The majority of Pakistan’s and India’s populations work in small-scale farming or are “self employed” in informal microenterprises. That’s true across much of the developing world. The National Bureau of Economic Research’s Rafael La Porta and Andrei Shleifer suggest that, in the poorest countries, more than two-thirds of the labor force is working on the family farm or is in the informal sector.

Farms managed by the world’s poorest people tend to be small and inefficient—demanding a lot of labor for little output. That’s why families farming them make up the bulk of the world’s population living on less than $1.25 a day. The majority of enterprises run by the world’s poorest are shops and kiosks making a few sales a day—general stores, tailor shops, telephone booths, or fruit or vegetable businesses. In India, data collated by MIT’s Abhijit Banerjee and Esther Duflo suggest the average shop run by people living in poverty makes a profit of just $133 a year. That low productivity helps to explain why, even though only around 200 million people in the world are considered unemployed by the ILO, 1.3 billion workers lived in families below the $2-a-day poverty line.

Banerjee and Duflo point out that some of the richer people in the developing world are comparatively successful entrepreneurs who’ve worked their way into the global middle class—earning enough to put their household income at somewhere above half the U.S. poverty line. For example, almost half of the rural population of Indonesia earning between $6 and $10 a day is self-employed. But worldwide, by far the most common way out of poverty in rural and urban areas alike is getting a job working for a company.

Economists Andrew Foster and Mark Rosenzweig (PDF) looked at rural poverty in India between 1982 and 1999 to see what forces had increased the incomes of the poorest. They found that growing agricultural productivity had played a big role. But expanding factory employment was twice as important in explaining rising rural wages. And in urban areas, more than two-thirds of those living on $2 to $4 a day across the developing world are in paid employment, while the proportion climbs even higher among those in the $6 to $10 category. Having a regular, paying job “may thus be the most important difference between the poor and the middle class,” conclude Banerjee and Duflo.

The problem is that while some jobs pay regularly in developing countries, there aren’t nearly enough for the number of people who want them. According to firm survey data reported by the ILO, China had fewer people in paid employment than the U.S. in 2008—115 million compared with 137 million—despite being home to four times the population. Labor force surveys suggest Pakistan has fewer paid employees than France—18 million compared with 23 million. That’s about one paid job for every 10 people in Pakistan, compared with a ratio nearly one-to-three in France.

Of course, the recent garment factory collapse in Bangladesh, where the 1,000-plus workers who died were earning about $40 a month, shows that “well paid” and “good” are relative terms when it comes to employment on the global scale. Factory workers in India’s garment industry complain of physical and verbal abuse alongside poverty pay. Meanwhile, China has approximately 60 million “dispatch workers”—temps who get few of the rights associated with full-time employment, such as overtime and severance pay alongside insurance.

Nonetheless, these jobs are still better than other options—such as begging or hawking on the street or subsistence farming. Making more money is, in and of itself, a life saver. Survey evidence suggests that being in the bottom fifth of India’s income distribution means your children have around a 12 percent chance of dying before their fifth birthday, compared with a countrywide average of closer to 8 percent, for example.

So for all of the grind of the 9-to-5, the great majority of the planet would be absolutely delighted to get a position with regular hours and a regular paycheck. And successful economic development—significantly raising incomes above subsistence—is about helping people achieve that dream.

That suggests something about the priorities of governments worldwide when it comes to promoting development. In the long term, economic development is about moving millions off the small farm and into jobs. Microfinance initiatives, which allow the poorest of the poor to make a little more from their farms and kiosk operations, can have a real impact on quality of life—but it isn’t going to catapult a large proportion of the population into the global middle class. Making people’s existing opportunities a little better is laudable, but giving them new opportunities is the better solution overall. Manufacturing, modern services, and export-led growth remain central to that effort.

And in the end, good jobs require a strong economy. That’s as true around the world as it is in the U.S.